Welcome back to a Big Australia

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Dr Bob Birrell and Ernest Healy from the Australian Population Research Institute have released a new research paper, entitled The Skills Crisis, University Culpability and the Overseas Student Industry, which examines the international student (immigration) boom that will arise following September’s Jobs & Skills Summit, alongside its consequences for Australia.

Below are key extracts of the report:

Overview

Prior to the May 2022 Federal election, the Labor Party pursued a cautious manpower policy emphasizing more training for domestic students.

The September Jobs and Skills Summit concluded that such is the seriousness of the nation’s skill crisis that migrants must be part of the solution. For the business interests present, these migrants must include overseas students, trained in our universities.

However, the Labor Government promised that, henceforth, the migration focus would be on permanent entry. This was to avoid a repeat of the huge pre-pandemic stock of vulnerable migrants (mainly students) on temporary visas in Australia’s big cities and the threat this posed to union interests.

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Since the Summit, the Labor Government has increased the size of the permanent entry migration program and has flagged a sea-change in overseas student policy.

Henceforth, according to the Minister for Home Affairs, Clare O’Neil, overseas students trained here will become an integral part of Australia’s skilled labour force training strategy. In early November, she asked:

Is it the right thing to train these people up as best in the world trainees, give them first class Australian degrees, and then essentially require them to leave the country and go and use those skills elsewhere?

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The answer invited is clearly no. Australia should promote the overseas student industry with the goal of incorporating more of the graduates into our workforce, including those with vital IT and engineering skills.

Hang on a minute. Aren’t Australia’s universities tasked to train domestic students in these skills? For years, governments and universities have affirmed this objective despite escalating foreign student intakes. However, it has not happened. Skill gaps are wider than ever.

Why? The Australian Government funds a specified number of undergraduate places (a stable number in recent years). It leaves the universities to decide the number of places by field of study. They do not have to, and in practice, do not locate these resources in fields where there are national shortages.

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Instead, the universities have prioritized the teaching of overseas students, because they keep all the proceeds and because they can charge what the market will bear. Fee revenue from overseas students currently makes up some 27 per cent of total university funding.

Few, other than insiders, know how much of Australia’s university teaching resources is devoted to overseas students. It is enormous. In 2020, 40 per cent of all university-level award completions went to overseas students (up from 35 per cent in 2012).

Most of the overseas student graduates are in fields with no relevance to Australia’s urgent skill needs. Nearly half are in Management and Commerce (Table 1), despite there being no domestic shortage of such graduates. By 2020, 63 per cent of all graduates (both domestic and overseas) in this field were overseas students.

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Table 1

But that’s not all. Few observers seem to know or care that in some of the fields of study where skill shortages are chronic, the universities are prioritizing training of overseas students over domestic students. This is the case for both IT and engineering, where there are far more overseas than domestic graduates (Table 1). Nursing is trending in this direction too.

Moreover, the overseas students do not have to meet the high academic standards and language skills required of the domestic students vying for these places.

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This is a moral issue. Where is the outcry about the obvious unfairness and the lack of university accountability on the issue?

The situation won’t change without major reforms. The universities enjoy great privileges, including the freedom to pursue their own research priorities.

It is time that, in return, the Australian Government requires them to provide the training needed to meet skill shortages and to ensure that domestic students have first access to the opportunities. The overseas student industry will have to be cut back to a least half its present size. Universities will have to be funded appropriately.

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As things stand this is not going to happen. The Summit ignored the issue and so has the Labor Government. It clearly intends to leave the present situation in place. On November 16, the Government announced a review of higher education. There was no indication that universities must prioritize domestic training in skill shortage areas. Instead, the terms of reference implied that the overseas student industry would be encouraged to fill the gap. The review was instructed that it should:

Support a competitive and resilient international sector: reflecting the important role international students play in our society and economy.

We examine the likely consequences of Labor’s policies.

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There will be a surge in overseas student enrolments, especially from students attracted by the increased opportunities to stay on in our labour market and obtain permanent residence.

There will be an accompanying rise in net overseas migration (NOM), primarily driven by the student influx. This has already been confirmed by the Treasury’s Office of Population. Their forecast that NOM would return to 235,000 a year (or ‘Big Australia’ levels) was included in Labor’s 2022-23 Budget Statements.

Contrary to Labor’s promise to reduce temporary entry migration numbers, the opposite will occur…

The implications for NOM of the revival of the overseas student industry

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The population consequences of the current revival of the overseas student industry are likely to be significant.

In order to explain why, we provide some background on how an earlier revival of the overseas student industry in the 2010s produced just this outcome.

During the 2000s, the Howard Government linked the training of overseas students at both the vocational and university level to subsequent access to permanent residence visas (PR). The result was an explosion in enrolments and also in evidence that much of the training was of poor quality…

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The universities vigorously exploited the recruitment opportunities which resulted. Their response included, as noted above, the expansion of courses (especially in the business fields) tailored to the lower academic capacity of overseas students. These were also tailored to meet the overseas students’ desire for qualifications which opened up the possibility of a permanent residence visa.

Overseas student commencements increased from 103,140 in 2012 to 202,213 in 2019 (before contracting a lot in 2020 as a result of pandemic restrictions on movement to Australia).

By the late 2010s Australia’s level of NOM reached around 245,000 each year, thereby adding near one per cent to Australia’s population each year. This, combined with natural increase delivered an overall rate of population growth of around 1.4 per cent a year (at least until the pandemic). This enormous figure (enormous by comparison with other developed countries) has been dubbed as ‘Big Australia’ levels.

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As we have shown elsewhere, the main driver of this immigration outcome has been overseas students. We provide the statistical evidence in Appendix 2.

Table 2
In brief, what happened during the 2010s was that most of huge influx of students did not leave Australia, despite the temporary nature of their visas. The result was a continuing surplus of student arrivals over student departures – which accounted for most of the growth in NOM during the decade…

The student surplus has resulted (as noted) because most students do not leave Australia when they complete their studies. Many regard their study as an investment leading to entry into the Australian labour market. This is especially likely to be true of those from the sub-continent of India. Most of them do not come from affluent families, and they need time in the Australian workforce to recoup their investment and often to pay off debts accumulated to finance it. Most stay on by taking up the graduate study visa option, or by churning to another temporary visa option (like another student visa). A minority manage to obtain a permanent residence visa…

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The total number of persons holding temporary visas in Australia increased from 1,884,296 in December 2014 to a peak of 2,408,196 in December 2019, just months before pandemic restrictions were imposed. Some 638,687 were New Zealand citizens. Their numbers had hardly varied since 2014 and thus had not contributed to the expansion of NOM.

The main driver of the growth in temporary visa numbers has been students. There were 480,543 overseas students in Australia as of December 2019, up from 303,169 as of December 2014. They have been concentrated in Melbourne and Sydney. This is the main reason why some 65 per cent of Australia’s NOM has been located in these two cities…

NOM is about to surge again

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The process was started by the decisions made by the Coalition Government prior to the May 2022 election. These decisions included overseas student fee concessions, the relaxing restrictions on hours of paid work and additional rights for overseas students to stay on in the Australian labour market after graduation.

Subsequently, the new Labor Government, with the Summit’s support, doubled down on these inducements. It has added an extra year to the right to stay on in Australia and participate in our labour market and has extended this right to course work postgraduates. (The Coalition had limited the right to undergraduates.)

Again, with the Summit’s endorsement, the Labor Government has sent a potent message to the overseas student industry that its graduates will have new opportunities stay on in Australia. As we have seen, the Government has signalled a new willingness to recruit overseas student graduates to the Australian workforce and that it will create new and more open pathways to their attaining permanent residence.

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These are just the kind of messages guaranteed to result in another surge of overseas student enrolments and an increase in the stock of students on temporary entry visas. The stock will grow as university enrolments build up. This will mean far more temporary residents seeking PR whose interests cannot be satisfied by any conceivable expansion in the permanent entry migration program…

Welcome back to a Big Australia and to the extravagant population visions of the Victorian and NSW State governments. The Andrews Government is projecting that Melbourne will grow from less than 6 million to around 9 million in 2056 (or equivalent to the population of Greater London). This expectation is the main justification of its massive ‘Big Build’ policy. The NSW State Government’s expectations are only marginally smaller…

The bigger picture implications of a return to Big Australia migration levels

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The Summit had nothing to say about the implications for the natural environment, urban quality of life and housing prices. All that it offered, as summarized by the Treasury, was this: ‘All levels of government will work together to ensure infrastructure, housing and social services are well-planned to meet the needs of a growing population’.

Nor did the Summit address Australia’s recent record of low labour productivity and its links to rapid population growth.

Australia is a natural resource-based economy that has found its comparative advantage, or niche, in the global economy as a supplier of mineral and agricultural commodities. It is a lucrative niche that serves as the foundation of the nation’s economy.

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Over the past decade, Australia’s business and political elites have overlaid upon this resource base a metropolitan economy based on providing for additional people (mainly migrants). We do not have the space to elaborate on the reasons for this here but the industries that flourish as a result are related to people servicing and city building. They have nothing to do with enhancing Australia’s internationally competitive industries, which are mainly natural-resource based.

Metropolitan-based service industries are the prime source of Australia’s low productivity record in recent years. Although the resource-based industries show high rates of labour productivity, they employ relatively few people. The overall level of labour productivity in Australia is largely determined by the performance of the people-servicing and city-building industries. Yet, these have shown little or no labour productivity growth over the past decade. The continued expansion of metropolitan-based people servicing through rapid population growth has resulted in economic growth, measured in terms of GDP, but this has been largely through low productivity capital widening. Low productivity GDP growth through population expansion will not serve Australia well.

About the author
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.